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Surprise! The spread of the COVID-19 illness can have a negative impact on pot stocks in a variety of ways.
In case you missed it, the World Health Organization (WHO) made the announcement that most people were expecting this past Wednesday, March 11: Coronavirus disease 2019 (COVID-19) is officially a pandemic.
The COVID-19 lung-focused illness has cropped up in 110 countries around the world, has been confirmed in close to 114,000 people, and has led to over 4,000 deaths, according to WHO as of March 10. Given COVID-19’s higher mortality rate among the elderly and people with compromised immune systems, this has led to seemingly unprecedented global responses at the governmental level, including a complete lockdown in Italy, as well as a halt to college classes, special events, and major gatherings in certain U.S. states.
The thing is, coronavirus isn’tjust affecting the physical well-being of the world — it’s also wreaking havoc on financial markets, and it has the ability to adversely affect supply chains in a variety of sectors and industries.
For example, you might think the fast-growing marijuana industry would be mostly exempt from coronavirus-induced panic. Unfortunately, that couldn’t be further from the truth. Here are four ways that coronavirus could affect the cannabis industry.
1. Supply chain disruption
The biggest issue will likely come in the form of supply chain disruption. Although we often think of cannabis in terms of growing and processing the plant within the confines of, say, the United States or Canada, there are a lot of moving parts of the supply chain that originate from China. That’s because China is a low-cost producer, which is perfect for the still-nascent pot industry.
For example, cannabis companies rely on China for vaporizer production. Anything tied to vaping is expected to lead all forms of derivatives in terms of sales, but this may not prove the case if China is unable to meet its production commitments. In particular, this could prove to be an issue for KushCo Holdings (OTC:KSHB), which has generated most of its sales to date from vaporizers. KushCo is also a key supplier of packaging materials, some of which are derived from China. Although KushCo has previously stuck by its healthy sales growth guidance, this may not be the case going forward.
Other supply chain disruptions could involve heating, ventilation, and air conditioning products, as well as LED bulbs. Even though cultivators have typically leaned on high-pressure sodium bulbs for their growing, LED bulbs, such as those provided by Cree (NASDAQ:CREE), are considerably cheaper over the long run, and they create less heat, which can reduce climate control expenses. The thing is, Cree has a significant LED production operation in China, meaning it could easily be disrupted.
Published: March 14, 2020
Founder & Interim Editor of L.A. Cannabis News